The planned merger of the Brown Hotels boutique hotel chain into the Herodium stock exchange shell Herodium Investments (TASE: HROD) has ground to a halt and is in danger of being canceled, sources inform "Globes." Market sources believe that one of the conditions for the deal - obtaining approval from Hachshara Insurance Company, which provided the Brown hotel chain with a loan convertible into shares - was not met. Eli Elezra controls Hachshara Insurance.
Sources close to the negotiations also said that it appears that the hotel chain owners are unenthusiastic about the merger.
Just under two months ago, Herodium Investments reported its intention to merger the Brown hotel chain into it through an allocation of shares to the chain's owners - Leon Avigad's Leopard Hospitality group, Nitzan Perry, and Nir Weizman. Herodium notified the TASE that it had signed a memorandum of principles to merge the hotel's activity into it in exchange for an allocation of 75% of the shares in the merged company, with an option to increase the proportion of the hotel chain's owners shares to 85%.
Herodium added that when a detailed agreement is signed, the Brown Hotel chain owners would provide financial statements and a "valuation of the chain by a known value to the effect that the activity is worth NIS 325 million."
"Globes" reported that investment banker Roee Eizenman had presented an obstacle to the deal by sending a letter demanding 6% of the merged company as an agent's fee. Eizenman introduced the Brown Hotel chain owners to Herodium controlling shareholder and CEO Roy Tamari. Herodium responded by rejecting the claims and demands, "which are an attempt to illegally extort money." Herodium's investment banker for the deal is the Value Base investment house.
NIS 60 million in financing for a 20% partnership in the chain
Hachshara provided up to NIS 60 million in financing to the Brown Hotel chain in June in a deal that was to make it a partner in the chain and give it a holding of up to 20%, at a value of NIS 300 million for the chain, after money.
As far as is known, the financing for the chain was provided from money belonging to Hachshara's policyholders. According to the information disclosed to Herodium by the Leopard Hospitality group, the group rents 14 properties in Tel Aviv and Jerusalem, in which six boutique hotels are currently operated. The other properties are in various stages of construction. Leopard Hospitality also manages a hotel in Tel Aviv and another hotel in Croatia.
The group is also scheduled to launch three more hotels in Ashkelon and Tiberias, while negotiating with third parties to lease other properties in Eilat, Ashdod, Tel Aviv, and Jerusalem that will operate as hotels, and which are scheduled to open in 2018-2019. The company was accordingly informed that the Leopard group would hold rights to hotels containing a total of 1,549 rooms by April 2019.
Published by Globes, Israel business news - en.globes.co.il - on November 18, 2018
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